IRS Clarifies 'Dependent' Definition in WFTRA
2004

November 18, 2004 (PLANSPONSOR.com) - The alteration
of the definition of a 'dependent' in the Working Families
Tax Relief Act of 2004 does not apply to employer-based
medical care reimbursements of premiums, according to the
Internal Revenue Service (IRS).

>With a notice that states that it will soon issue
regulations on the new definition – but that employers
should rely on the ruling in the notice in the
meantime – the IRS asserted that the Section 152
definition of a dependent does not apply to
employer-provided medical care reimbursements or premiums,
according to a BNA report.

>The IRS said that the Act contained a conforming
amendment to Section 105(b), which would exclude from an
employee’s salary the reimbursements and premiums paid to
an employee for medical expenses. This would apply to the
employee, the employee’s spouse, and other dependents. The
conforming amendment states that a person’s dependent
status for Section 105(b) would be determined without
regard to certain parts of the amended Section 152. Thus,
the IRS states that Congress did not alter the definition
of dependent for these specific payments, according to
BNA.

>Section 106(a), however, did not contain an
amendment, and the section should be revised to provide the
same definition of dependent as is seen in Section 105(b).
Congresses intent was not to alter the definition with
regards to employer-provided health plans, the IRS stated,
and thus employers should note that Section 106 was not
clear on this subject.

>The revised regulation would be applicable beginning
after December 31 of this year.